In the theoretical world of investing, there are two kinds of investments—those which entail a degree of risk and those which are considered to be risk free. In the real world, there is no such thing as a risk-free investment. Investments that are risk-free, such as treasury-bills, carry inflation risks. Inflation reduces purchasing power and consequently the returns earned on an investment. If you could earn a 10% return on your money and the inflation rate is 6%, your real return is only 4%. The 6% inflation rate reduces the purchasing power of your dollar wealth. If the economy is experiencing inflation, the purchasing power of each dollar you earn will erode in value.

In the example above it becomes obvious that investors need to distinguish between nominal investment returns (the return before inflation is subtracted) and real investment returns, the growth rate in purchasing power. To obtain real returns on any investment, we must reduce the nominal returns by the inflation rate in order to account for the loss in purchasing power. In today’s inflationary world, investors are actually experiencing negative rates of return. As the table below illustrates, the interest rate returns on government securities are less than the inflation rate.

With an annual inflation rate of 4%, today’s investor would have to invest in 30-year government bonds in order to earn a return higher than the inflation rate. After taxes and inflation, the return on that 30-year Treasury bond is still negative. With an annual inflation rate of 4%, the principal would have to double every 18 years just to keep even.

Because nominal and real investment returns are negative today, investors are having a hard time maintaining purchasing power and growing their wealth. The major stock indexes are down this year and real interest rates are still negative. Outside of commodities and real estate, most investments have lost money in 2004. Unless you are investing in hard assets, chances are you are probably losing money. More importantly, with inflation rates accelerating, the purchasing power of your investments are slowly eroding. Furthermore, fiscal and economic conditions in the U.S. are rapidly deteriorating. In the words of one South American bank director, “Sometimes I wonder how the United States holds together. Your investments in productive assets are down, growth in non-productive sectors is up, and you purchase more than you produce.”[1]

The chief worry of the financial markets at the moment is still deflation. The deflation camp remains in ascendancy. The financial headlines tell us that there is very little risk of inflation. Most headlines talk about inflation worries moderating. Central bankers from Alan Greenspan to Ben Bernanke believe rising commodity prices—oil in particular—pose very little threat to the U.S. economy. Speaking at Dalton College in Albany, GA., Bernanke said he believes the Fed will be able to maintain its “measured” pace of rate hikes, in part because inflationary expectations remain low.[2]

However, deflation and inflation have been and always will be a monetary phenomenon. As long as there are central banks and as long as there is no metal backing to currencies, the potential for inflation—indeed hyperinflation—remains a real risk for investors. As this chart of M3 indicates, the supply of money and credit show no sign of letting up. In fact, during the next recession, which could hit the U.S. economy next year, the Fed could find itself once again lowering interest rates and pumping money and credit into the financial system and the economy at a feverish pace. If foreigners no longer provide us with credit, then “Katie, bar the doors!”, the Fed will have to start monetizing our debt and the U.S. may find it expedient to impose capital controls. 

We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.

The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.

Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:

• Large budget deficits
• Deteriorating international trade balances
• An eroding international currency
• Eroding financial confidence 
• Growing protectionism
• An expanding war on terrorism and the need for security
• Growing entitlements

Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.

An expanding money supply, abundant credit, and negative interest rates are inherently inflationary. When investors realize that they can borrow money at next to nothing rates and invest that money in hard assets and get an immediate return, the demand for such assets rises. This leads to higher prices, asset bubbles or inflation. This is what is going on now in the financial markets, the real estate market, and in the commodity markets. A flood of money and credit throughout the world is driving asset bubbles and inflation. Central banks can create money and credit, but they are unable to direct where that money flows. One of the chief characteristics of inflationary cycles is asset bubbles. First, it was stocks in the 1990s. Then, it was real estate and mortgages in this new century. It is now working its way through to the commodity markets. The new bull market in commodities will dominate the financial markets the balance of this decade and the next.

As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is “measured.” This means that real interest rates will remain negative for a long period of time.

No matter how high inflation finally gets, it is abundantly clear that the financial markets are undergoing a paradigm shift from a bull market in paper to a bull market in commodities or “things” as I like to call them. Investors will need to focus on a different class of assets. Real assets are going to be the big winners in this new emerging bull market. Commodities are becoming “The Next Big Thing.” Precious metals, base metals, energy, water, and food are where the next fortunes are going to be made. Precious metals have, will, and are going to lead this new bull market. It is in regard to precious metals that I devote the remainder of this essay.

Leverage - 21st Century Investing

One of the favored ways of making money over the last decade has been to borrow at short term rates and invest long. This has been popularly referred to as “the carry trade.” With a positively sloped yield curve as we have today, an investor can borrow short-term funds at less than 2% and invest those funds in higher yielding investments. This leverage allows the investor to magnify returns. For example, let us suppose that I can borrow money at 2% and invest that money at 5%. The difference of 3% is my net profit. However, my returns are actually much greater due to leverage. I can buy $1,000,000 of Treasury bonds paying 5%, while my cost of borrowing is only 2%. In making that $1,000,000 investment, I only need to put down 10% or $100,000. The rest of the money $900,000 or 90% can be borrowed. Instead of a return of 3%, my return is multiplied tenfold to 32% through the use of leverage.

As the above example illustrates, through the use of leverage, I am able to turn a 3% return into a 32% return simply by using low cost borrowed funds. At a time when real interest rates are negative, it pays to borrow money and invest in real assets that are appreciating in value. This is what has been going on in the real estate markets in the U.S. and elsewhere around the globe thanks to monetary inflation. Real interest rates are what you actually earn (or what you pay, if you borrow money) after the impact of inflation. They are nominal rates minus the inflation rate. Negative real interest rates such as we now have in the U.S. become the rocket fuel that ignites hard assets. Abundant money and credit and the negative interest rates that follow are what gives birth to asset bubbles. Look behind the cause of every asset bubble in history and you’ll find monetary inflation as the cause.

Options—What and Why

A second way that leverage can be used to increase investment returns is through the use of options. Webster’s dictionary gives several definitions for the word "option" — a choosing, choice, the right of choosing, something that is or can be chosen, the right to buy, sell, or lease at a fixed price within a specified time. In the financial world, we are concerned with the last definition of the word "option." First, we need some practical explanations.

In the financial markets, an option is created through a financial contract known as a derivative. Originally, options were created by individual contracts between two parties that gave the option holder the right to buy or sell a particular commodity for a specified price and time. Every option is either a call option or a put option. Owners of a call option have the right to buy a particular good at a specified price, while the owner of a put option has the right to sell a particular good at a specified price and time.

In today’s financial marketplace, you can buy options on almost every conceivable financial instrument and intangible asset in the market price. You can buy options on stocks, stock indexes, bonds, interest rates, commodities, and currencies. You can even own an option on the right to buy land, a residential home, an apartment, or a commercial building. The ownership of a call option gives its owner the right to call the underlying asset or good away from someone else for a specified price and for a specified time. Likewise, the owner of a put has the right to sell a particular good or asset to someone else by forcing that person to buy the underlying asset or good at a specified price during a specified period of time.

The right to buy or sell these assets is acquired through the purchase of a call or put option. Options are used for the purpose of buying or selling something. They are bought in the marketplace through traders by paying a premium to the seller of an option. In an option trade, there are two parties involved. For every owner of an option, there is a seller. The seller of an option is known as an option writer. When an option is sold, the option buyer pays the option seller (or writer) a premium. In exchange for the option premium, the option writer confers the rights to buy or sell something in exchange for the premium received. In an option trade, the buyer has all of the rights to buy or sell something at a specified price and for a specified time period. The option writer (or seller) has all of the obligations to either provide the specified asset or good or to buy the specified asset or good to fulfill the option contract obligation. In the case of a put option trade, the option writer is required to buy the underlying asset or good at the price specified in the contract -- regardless of market price or conditions.

Options [which are derivatives since they derive their underlying value from the basic asset or good upon which they are written] have risen in popularity over the last two decades. They are used in the financial markets for various reasons that range from risk management, speculation, trading efficiency, or for arbitrage. For example, a car dealer in the U.S., who buys foreign cars from Japan, runs a currency risk. If the dollar falls against the yen, as it is doing now, the car dealer runs the risk that he will have to pay more dollars for the cars he orders from Japan. Why? Because the price of the dollar is falling against the Japanese yen. This means the cars he buys will become more expensive. To hedge this risk, he may buy a currency option on the yen that locks in the price of the yen versus the dollar. In this way, he has hedged his risk of a dollar devaluation against the yen and has controlled his exposure to this risk.

Option Trading for Speculation & Efficiency

Options can be used for trading efficiency and as a means of leverage when investing. If you are bullish on gold and believe that gold stocks will advance, as gold rises, you could buy the shares of Newmont Mining. Newmont’s shares are currently trading at $47. If a trader believes that Newmont’s shares could rise more than 20% to $57 a share, he could buy 100 shares of Newmont at $47. A 100 share purchase of Newmont at $47 a share would cost an investor $4,700. Alternatively, an investor could choose to buy an option on Newmont. For example, he could buy a January $50 call option for 100 shares of Newmont Mining for $195. If the price of Newmont rose to $57 a share as expected, an investor's profit would be as follows for both trades:

In the illustration above, an investor could buy an option on Newmont Mining for less money, control the same amount of shares, and make more money through the leverage afforded by options. If the trader was more aggressive, he could invest the entire $4,700 and buy roughly 24 option contracts ($4,700/$195 = 24.1 contracts). In this example, a trader would control 2,400 shares of Newmont for the same amount of money. With leveraging the same amount of money as a cash purchase, his potential profit would be $12,120 instead of the cash profit of $1,000.

The above example has been simplified. I’ve left out the cost of commissions and have rounded the option contracts to 24 instead of 24.1. Option contracts are sold in round lots of 100 when purchasing stocks. However, as can be seen from this illustration, options can be used as a substitute for a position in the more fundamental asset or shares of Newmont Mining. If the entire amount of the purchase was used to buy options instead of the actual asset, those options could be used to leverage the trade. In the example above, an investor would be able to control 2,400 shares of Newmont with options versus 100 shares in the cash market.

The Time Factor

In the above example the use of options appear as a more attractive means of investing in stocks due to the magnification of leverage. However, options have their own unique risks. To understand this risk, I would like to repeat once again an explanation given in Part I of this article written back in 2002.

As attractive as options are for efficiency and leverage, they also have a few problems. Options have a time factor. In the example above, the option contract would expire in September. If the price of Newmont did not rise above the call price of $35, the option contract would expire as worthless. If the trader had bought the actual shares of Newmont Mining instead of the option contract, he would still own the shares of Newmont. When an investor or trader buys an option, it has a time value component. There are many more aspects involved in an option purchase that an investor or trader has to deal with that impact the price of an option contract. The world of option trading exposes investors to a lexicon of terms known as "The Greeks.” I’ve covered these aspects in my articles Rogue Wave - Rogue Trader and Rogue Waves & Standard Deviations - Part 1, but they are worth repeating, since they have relevance to the discussion of this article. The Greeks measure different dimensions of risk in an option position. The aim of a trader or speculator in an option contract is to manage the Greeks so that all risks are acceptable.

A Review of The Greeks
Essentially, the Greeks are techniques for hedging against the behavioral aspects of an option, future or a cash position. There is "Delta," which tries to capture gains from volatility by hedging a portion of the option value. The idea behind “Delta” is to make money on volatility. The more times you can delta-hedge an option, the more profit can be realized to help pay for the option investment.

Then there is "Gamma." Gamma is the second derivative of the option price, which deals with the sensitivity of the delta (rate of change of the delta) with respect to the cash price of the underlying asset. Because of the convexity of the option price curve, there is a greater opportunity for the change of the option price if the cash or spot price moves. In other words, greater convexity delivers more bang for the buck if you’re long, and more pain if you are short.

Options become more expensive when volatility in the market is high, and less expensive when volatility is low. The sensitivity of an option’s price to changes in its implied volatility, all other things being equal, is called the "Vega." There are other Greeks, such as "Rho," which deals with an option’s sensitivity to changes in the domestic interest rate.

Time is a Deciding Factor

Essentially, the problem for all option investors is TIME. An option gives the option holder the right to buy or sell an asset for a specified time period. When the time runs out, the right to buy or sell a particular asset also runs out. Option investors are always playing against the element of time. When you are investing in options, you have to not only be right about the investment, you also have to be right about your timing. The price of an option will change with the passage of time. The tendency for an option price to change due to the passage of time is known as time decay. "Theta" measures the change in the option premium for a given change in the period of expiry (usually the passage of time). Theta describes how much time value is lost from day to day as a result of time decay. It is a precise measure of time decay.

In the example of our 90-day call option on Newmont Mining at inception, the option will hold 100% of its time value. However, each day it will lose 1/90 of its value. After day one, the option would have a time value of 89/90. During the early days of an option's maturity, it retains most of its time value. Time decay is almost constant during the first two thirds of the option's life and it increases during the final third of the options life as shown in the graph above. Therefore, option investors are always playing against time.

Investing in The Perfect Option - Junior Mining Stocks

In the gold and silver market, there is a way to invest in "the perfect option.” This form of option still offers the leverage to the price of gold and silver that can be found in a regular option. However, it has the advantage of not having the same risk of time decay. The perfect option vehicle for investing in the gold and silver markets can be found by investing in the shares of junior mining companies. Junior mining companies outnumber senior mining companies by almost an 8:1 margin. Juniors are either an exploration company that explores for new deposits of gold or silver or they may be a small mining company with only one or two mines in operation.

A Risky Business

Dry Holes and Financial Risk
A Junior mining company carries more risk than a senior mining company does because they are essentially exploring for new mine deposits. Like the oil business, they may end up with a dry hole. The money spent in trying to find a new deposit may fail. Therefore, their shares are subject to greater risk and volatility than senior mining companies. They also fluctuate and are more volatile against the rise or fall of the price of gold or silver. Because of the risk involved in finding new deposits of gold or silver, juniors mainly rely on equity financing through public offerings, private placements, or joint ventures with major mining companies. The risk for a junior is that the company will not find new deposits of gold or silver. Another risk is the possibility that when they do find deposits, they may not have the financial wherewithal to develop and maintain the property on which the gold or silver deposits were found.

Dirty Dealings
There is also the risk of fraud. Several years ago, the junior mining industry was tarnished by the Bre-X scandal. Bre-X Minerals went from becoming the world’s largest gold deposit to the biggest gold swindle in mining history. Investors lost billions of dollars in the fraudulent stock scheme. The founders of Bre-X had gone to the jungles of Borneo and supposedly found the largest deposit in the world. Bre-X’s Busang project in Indonesia turned out to be a hoax. Vivian Danielson and James Whyte write, “But Busang was more than an ordinary gold scam with a few zeros added, caused --- once again -- by gullibility and the lure of riches. It was an extraordinary popular delusion, adding yet another chapter to that great and awful book of human folly. Busang was a tragic triumph of ego and emotion over reason and science, as well as a triumph of timing, for it might well have remained a small, low-grade scam had it not been picked up and carried along by a Bay Street juggernaut with more cash than common sense and an army of investors predisposed to believe. ...Bre-X was a mammoth embarrassment, not only because it overshadowed the good work carried out by honest geologists and engineers, but because it had become one scam too many. Mining, particularly junior mining, is an industry that needs public support to survive. The trust over decades by honest mining men had been undermined too often by unscrupulous characters out to make a quick dollar through deceit and trickery." ¹

For the exploration mining industry, the Bre-X scandal was the final straw. In its wake, new capital dried up for many junior exploration companies. Those companies that survived the scandal saw their stock prices crater, like the Internet bust, in the mining stock market crash that followed Bre-X. The combination of the scandal with lower prices for gold and silver and the technology boom of the late 90’s saw capital dry up for the industry.

Junior Fundamentals

Every industry goes through a cycle. As a result of a multi-decade bear market in metals, the mining industry contracted and consolidated. This was forced upon the industry as a result of lower prices over the last two decades. Most companies cut back their exploration budgets dramatically to conserve costs.

With gold selling below $400 for most of the 80’s & 90’s, it didn’t pay to go out and explore to find new ounces. Instead, it was more profitable to buy other companies. Prices got so low during the mid and late 90’s that many companies, such as Barrick, made more money through the sale of derivatives than they did actually mining gold and silver. Most mines lost money during this era. In order to control costs and revenues, they were also forced to mine their high grade ore.

As a result of industry consolidation, the industry became dominated by very large producers (VLPs). The size of their annual production, coupled with the short mine life of their reserves, presents a significant problem for the industry. The underlying assumption that these large producers can explore, discover, or even acquire large gold deposits to replace depleted reserves is fatally flawed. As H.R. Bullis has pointed out, “A key point in the discussion is that, due to the nature and size distribution of gold deposits, their location and the difficulty in finding and delimiting them, it will be extremely difficult for the VLGPs (Very Large Gold Producers) to discover and define, on a year-on-year basis, new reserves of sufficient size to maintain life-of-mine profiles and therefore to maintain their current production rates over the intermediate to longer term.”[3]

As the next set of tables illustrates, global gold production has remained stagnant—if not slightly lower—over the last six quarters. Furthermore, there has been a fall in output for four out of the top ten producers, Newmont Mining, Barrick Gold, Freeport McMoRan and Rio Tinto. Those producers who have gained in production have done so through acquisitions over the past year. In addition to declines in production at major producers, unit costs per ounce have risen by over 17% over the last 12 months.

The reason costs have risen is due to strengthening producer currencies, especially the rand against the dollar, declining ore grades and higher fuel, labor, and power costs.

The combination of size of annual production, short mine life, and rising costs presents myriad problems for the VLGPs. The exploration department of major producers will have to explore and find or buy deposits that will extend mine life. With costs rising, they will also have to find or acquire ounces at a reasonable cost, something the industry has not been very good at doing.

Combining with another large producer through a takeover or merger would not accomplish these objectives. The takeover company would have to provide the acquirer with longer life reserves or a lower cost producing mine.

The VLGPs are facing an almost impossible task because of the size of their annual production. They will have to explore and find new major gold deposits, which are getting increasingly hard to find. If they use acquisitions as a means of replacing reserves, they’ll have to find companies whose mine life is considerably longer (ten years or more). In addition to making new discoveries or acquiring other reserves through acquisition, the VLGPs are facing time constraints. Due to growing environmental restrictions and growing geopolitical risks, it is taking longer to bring a new mine into production. The larger the size of the project, the greater the delays and the scrutiny by regulators. In short, the large producers will have to use a combination of exploration and acquisition just to maintain their present production rates. This is a daunting task and it is very unlikely that VLGPs survive at their present size. The majors have been reluctant to buy juniors and have opted instead to buy other producers. Purchase prices have been uneconomical with most acquisitions made at above spot prices of gold. I’ll return to this topic in a moment. Suffice to say the majors, as well as the intermediate producers, are going to have to go on the acquisition trail again, if production rates are to be maintained over mid-to-long term. This means junior exploration companies with sizable deposits and low production costs will once again become takeover targets.

Chasing Ounces

The problem for investors is what to look for in a junior when making an investment purchase. The standard practice in the industry is to chase ounces. Advisors recommend buying the junior with the largest amount of ounces on the balance sheet. There is very little regard for the mineability or the profitability of those ounces. The market counts ounces and applies little—if any—discrimination to the quality of those ounces. Inferred ounces are treated in similar value to measured and indicated ounces, which are of higher quality. In a similar fashion, there is very little distinction made between ounces that are unprofitable and those that can be mined profitably. This same mistake is made by majors when they make acquisitions. Most takeovers have been made at prices that are above the spot price of gold. Very few acquisitions have been made at a reasonable price to allow for a margin of safety should the price of gold or silver drop sharply.

In this regard investors will likely find three categories of ounces when shopping around for a junior mining company. They are as follows:

• Mineable Ounces
  - Inferred
  - Measured and Indicated
  - Convert to Reserves
• Profitable Ounces
  - Actually mined and produced
• Dreamable ounces
  - there, but not there

Mineable Ounces are just exactly what is implied. They are ounces in the ground that are of sufficient size and quality that they can be mined. In order to put in a mine, a company has to conduct a feasibility study. In order to proceed to feasibility, ounces have to be in the Measured and Indicated category. Inferred ounces are not acceptable, since they cannot be converted into Reserves, which are developed from Measured & Indicated ounces. Mineable ounces may only be marginally profitable. So the first thing that an investor needs to do is to distinguish among the categories of ounces. Measured and Indicated ounces or Reserve ounces are worth more money to an acquirer than inferred ounces.

The next category of ounces is what I refer to as Profitable Ounces. These are ounces that actually can be profitably mined by a company, resulting in profits for shareholders. One of my big beefs with the mining industry is that they have cared very little about profitability and have been more concerned with empire building and acquiring ounces. An investor only needs to spend a few moments examining the quarterly financial statements of most mining companies to realize that very few of them make money. The returns on capital and equity have been abysmal (4-6% range). In fairness, part of this has been due to a protracted bear market in metals. But there are other reasons as well. The industry has often overpaid to acquire ounces. As the table below illustrates, since 1994 when the industry began to consolidate and expand, most acquisitions have been made at prices above spot gold. The average for the industry is 101% of spot. Very few companies have acquired deposits cheaply.

The last category of ounces is what I call Dreamable Ounces. Because of location, geology, metallurgy or geopolitical reasons, these ounces—although definitely there—will unlikely be brought into production. They are for the most part figments of imagination of the promoters of these companies and the brokerage firms who peddle them to unsuspecting investors. The ounces are either spread out in too many locations or because of the metallurgy of extracting those ounces, will require gold prices at a gazillion dollars to make the production profitable.

Three Possible Outcomes for Juniors

Having an understanding of what kind of ounces a junior mining company holds will also be helpful in determining the eventual fate of a particular junior exploration company. There are only three possible outcomes for a junior exploration company. They are as follows:

1. Go into production.
2. Get acquired by another producer.
3. Go bankrupt or fade into oblivion.

For long-term investors, the first outcome of becoming a producer offers the best possibility. The share price—and therefore the market cap of producers—is much larger than non-producers. Until a company goes into production and actually mines the gold and silver, it has no source of revenues. If you believe prices are going higher in this new gold and silver bull market, production is one of the best ways to make money from higher prices. The larger market caps afforded producers is a testament to this fact.

The second outcome for a junior exploration company is that it gets acquired by a producer. As mentioned above, finding large profitable deposits are getting harder to find globally. Those exploration companies with million ounce deposits can become an attractive takeover candidate by a small to mid-size producer. An exploration company that has one million ounces that are highly profitable is a rare find. It is the diamond in the ruff.

The Cost of Acquiring Gold Production

Total Cost Acquisition
The cost of acquiring gold production is a function of three variables: the adjusted market capitalization of the potential target company (or asset), the cash operating costs for mining those ounces, plus the estimated capital cost over the life of the assets. This is referred to in the industry as Total Cost of Acquisition or TCA. On a historical basis over the last three to four years, the weighted average acquisition price has been $330 an ounce. This price is a reflection of the lower gold prices that prevailed between 1994 and 2003 when most acquisitions were made. In any one year, TCA can average 90% of current spot prices for gold. As gold prices climb higher, obviously the TCA cost will also climb. As shown in the chart below of most recent acquisitions, the $330 price has been a good benchmark in determining acquisition prices.

The $330 price is a reflection of what the company paid to acquire the ounces of the target company, the capital cost of putting in and operating a mine, and finally the cost per ounce of production.

This brings me back to the key points of investing in a junior exploration company. They are, in my opinion, the only key points an investor needs to understand: Will there be a mine and will the mine be profitable? In this regard I come back to an earlier point on distinguishing among the quality of ounces. Not all ounces are created equal. Some ounces will eventually become mineable. Some ounces will be highly profitable. Lastly, others are only Dreamable or exist as a figment of imagination in the mind of the promoters.

To distinguish among the categories of ounces, first an investor needs to determine whether a junior exploration company will eventually become a producer. Secondly, if it becomes a mine, how profitable it will become? And finally, if acquired, how high a price will be paid for those ounces?

Looking at actual industry history and using the historical $330 TCA, the more profitable the ounces, the higher the acquisition price with all other factors remaining equal. In the example shown, among three companies with different operating costs per ounce of $250, $200, and $150, the company with the lower cost per ounces should command a premium in a takeover. There would be less risk and it would be more profitable for the acquirer to buy the company with $150 cost of production than to pay less money for a company with a $250 cost of production. If gold prices fall, the $150 ounces could still remain profitable. Conversely, if gold prices rise, the $150 ounces would generate more profits for the acquiring company. In either case, the acquiring company would be better off buying the cheaper cost ounces. They are simply more economical to operate in either a rising or falling gold market.

Other Factors: Integrity, Management, Deposit, and Location
There are other factors to consider when looking at investing in a junior that should also be given consideration. These factors relate to the integrity and experience of management. If you don’t have honest and knowledgeable people running the company, very little else matters. Quality of management should be at the very top of the list when you consider investing in a company.

Other factors that need to be looked at are the location and the size of the deposit. Some companies have boasted of sizable ounces, but they don’t tell you that most of these ounces are spread all over in three, four, or five locations. If the deposit isn’t large enough, it becomes uneconomical to mine.

A final point on location is related to the geopolitical risks of the deposit. Is it located in a mining-friendly country? The country should have laws that respect and protect property rights. Geopolitical risks should also be factored in the investment decision. Wars, revolutions, expropriation are real risks and must be factored in, regardless of how favorable or sizable the deposit.

The Finance Cycle

Another factor that is given very little consideration is how a company gets its financing. How a company is financed can make all the difference to a company’s survival and the returns shareholders can expect to earn on their investments. Junior exploration companies entail a high degree of risk. Very few juniors ever end up becoming a mine. Statistically the chances of a junior exploration company turning into a profitable mine are 1 in a 2,000. Because of this high degree of risk, it becomes enormously expensive for a junior mining company to get initial financing. The risk involved in actually finding and developing ounces are enormous. Obviously, a company acquiring an existing deposit, where there are known reserves, is less riskier than a company that is starting from scratch and hoping to make a discovery.

Most initial stage financings are done at what I call "usurious" rates. The brokerage firm will charge the company an 8 percent commission and legal fees. In addition to upfront commissions, the brokerage firm will also demand 20% in broker shares. Since most initial financings are issued with warrants, the brokerage firm may get an additional 10-20 percent in the form of warrants that accompany each share. In effect, the brokerage firm may get the equivalent of 30, 40, or 50% of the offering in shares and commissions. This usurious form of compensation is highly dilutive to the founders and management of the company as well as the shareholders. Over the course of several financing cycles, the junior companies becomes overly diluted and find it difficult to attain success. An example below illustrates this point over a three-stage financing cycle.

Danger of Dilution
As mentioned above, the more dilutive the share structure, the lower the price of the stock. If a company is acquired on the basis of ounces, the fewer number of shares the better. This is because the total purchase price of the company will be made on the basis of ounces. That purchase price will have to be divided by the number of fully diluted shares. It boils down to simple arithmetic. The fewer the amount of shares given a fixed set of ounces, the higher price per share in a takeover. The higher the amount of shares, the lower the takeover price per share.

Pump, Dump, and Short Cycle

There is another aspect to the finance cycle that most investors—and in many cases junior mining executives—may not be aware of. This is the pump, dump, and short operations conducted by some of the brokerage firms that underwrite junior exploration companies.

On a daily and weekly basis, there are numerous financings that come to the market. Most of these companies will never make it, despite the high hopes of the founders and the brokerage firms that take them public. The odds of a junior mining company making it into actual production are about 1 in 2,000. Many of these companies will survive by either consolidating, locating another property, or starting the process over again. In addition to the high risks involved in exploring for gold and silver, generally there aren’t enough buyers to absorb all of the selling that comes into the market from new financings. This is where the pump, dump, and short cycle comes into play.

The Pump
In order to sell shares to the public, the brokerage firm will promote the new offering with a high degree of hype in order to induce investors to buy into the offering. Once the offering is complete, the mining company now has the funds to begin drilling and exploring for gold. As drill results start to come in, enthusiasm for the stock heightens. With most investors having little understanding of how to read a drill or assay report, they tend to get overly hyped. The brokers tend to get everyone excited and talking about the stock. Often the hype can build into a frenzy with the new company being" talked up" as the next big mining play because of their discovery of the “The Dream and Fantasy Mine.” At this point enthusiasm for the stock is at a peak and the brokerage firm that sponsored the company starts unloading their broker shares, which they received as a fee for doing the financing. These shares are acquired at a very low cost. Since many of these shares are acquired on an option basis, the firm can sell the shares as broker warrants as their inducement to do the financing. So these are shares that can be easily sold into the market, because there is very little cost associated with the shares. The brokerage firm has no cash at risk. It is pure profit.

The Dump
The brokerage firm takes advantage of the enthusiasm and hype as an opportune time to unload their shares to an unsuspecting public. Investors at this time are caught up in all of the hype, believing they are going to make a fortune in the stock. That enthusiasm by the public creates demand for the shares, which are unusually bid up in spectacular fashion. Eventually, the brokerage firm has sold enough shares to absorb all of the buying and the stock starts to crater with individual investors losing big money. The brokerage firm may also begin to spin the firm’s biggest clients out of the stock in preparation for selling them the next “Penny Dreadful” (the firm’s next offering).

During the pump phase of operations, a penny stock can often climb to heights in the market that can mesmerize investors with thoughts of making large fortunes. The brokerage firm and its brokers are talking the stock up and talk on the street can fuel a stock rally that resembles the Internet boom in the U.S. in the late 90’s. However, during this time as the stock price gets elevated through hype, the company’s management—along with the brokerage firm and large shareholders who acquired their stock earlier at lower prices—use this opportunity to dump their shares. Eventually the news starts to fade, the price of the shares start to fall, and small investors, who bought into the market at the top on hype, are stuck with high prices shares.

In some cases the pump and dump operations are conducted in collusion with the brokerage house that took the company public.

If it is a reputable company with good prospects, an investor simply needs to hold and ride the cycle out. Eventually, more drill results and favorable news on the company will help to elevate the shares again as the company expands its drilling operations with successful results. However, this does not always happen. Most drilling will result in some degree of mineralization—most of it will not be worth much. It may simply be iron ore, which is worth less than actual gold, silver or other base minerals. The hype was over the possibility of finding large gold and silver deposits. The company may find some gold and silver, but it may be so small or uneconomical that it is virtually worthless.

The Short
In addition to pumping and dumping a stock, a brokerage house will often begin shorting the stock after a brief time period following the initial financing. They do this to make money. They sell the stock short into the hype phase when the price of the stock is rising and investor demand is at its peak. Eventually, enough selling comes into the stock to absorb all buying and the stock then begins to fall due to additional selling pressure. The brokerage house will stop talking up the stock and eventually the news dries up and the stock craters. At this point, they will quietly start buying shares and cover their short position at a nice profit from disappointed investors who, are now selling their high-priced shares at a lower price.

Some brokerage firms make more money shorting the shares of companies they underwrite than what they actually made in financing the company. It is all part of the business and the brokerage house makes money on either side of the trade. In Vancouver, the mindset of some brokerage firms is based on failure. Most of the junior mining companies that are taken public will never reach production. The vast majority of companies will fail. Given the odds of failure, brokerage firms have found it more profitable to bet on failure than to bet on success. The simple fact is that most junior mining companies will fail or never reach the production stage. Even then, very few companies will ever become profitable as most mines don’t make money.

Only a very small group of companies ever break out of the pack or the vicious pump, dump, and short cycle. Those that do are the real winners and they are rare. Finding these companies is not an easy job, which is why most advisors recommend buying a large basket of juniors to protect and diversify a portfolio. All you need is one spectacular company to make up for all of the ones that don’t work out. Because of the high degree of failure of most junior mining companies and the shenanigans that take place in the finance cycle, an investor is better off investing in a mutual fund or dealing with a knowledgeable advisor.

Caveat Emptor

Buyer Beware. With all of the hype that surrounds the junior mining sector, investors and mining executives need to become more aware of what goes on during the financing cycle. For mining executives, it becomes imperative that they get educated on the conduct of their brokerage firm. Is the brokerage firm supportive of the company or is the brokerage firm pumping, while dumping their stock? Is the brokerage firm shorting shares in an effort to drive down the price and profit from the trade? Not monitoring the actions of the brokerage firm can be costly to the company's financing plans. Many times, before the next financing takes place, the brokerage firm will drive down the shares to take the stock down and make it easier to finance. Juniors are valued on the basis of ounces or the potential ounces the company may own. Driving the price down before an offering makes it easier to sell the shares to knowledgeable investors. It also enhances the brokerage firm's profit opportunity in making a profitable trade.

For example, let’s say the price of the shares are currently selling at $0.75 a share and that based on the ounces, the company's fair value for shares would be $0.60 a share. The brokerage firm may start selling the shares or shorting the stock ahead of doing a financing at $0.40 a share. Financing the shares at a lower price increases the odds of conducting a successful financing and making a profitable trade for the brokerage firm. Since the brokerage firm will receive broker shares in addition to commissions for doing the financing, those broker shares and warrants can then be sold at a profit. If the financing is done at $0.40 a share, the warrants may be exercisable at $0.45-0.50 a share. If the stock is currently selling at $0.75 and fair value for the stock is $0.60, knocking the stock down makes it easier to do the financing and also makes it more profitable for the brokerage firm to trade out of the shares later on after the financing has been completed.

From management and shareholder point of view, the financing should be done at as high a price as possible. This brings in more money to the company that can be used to conduct drilling and it also means less shareholder dilution since fewer shares have to be issued at the higher price. Oftentimes the brokerage firm's goal of doing a financing at a lower price are in direct conflict with management's goal of minimizing shareholder dilution. Unless management monitors the brokerage firm's market operations, they may not be aware that the brokerage firm is driving down the share price ahead of a financing. A company should have access to Level II quotes, which lists bid and ask prices and also discloses who is making the bids and offers. In some cases, an brokerage firm may have one of its subsidiaries doing the selling to disguise their market actions. Knowing who the subsidiaries are and following the brokerage firm operations is critical to holding the brokerage firm accountable. It will also help in the negotiating process.

Examples of Manipulation
With all of the scandals going on in the market, investors as well as mining executives need to become aware of what goes on in the marketplace with their shares. Two examples will illustrate this point. Last year while accumulating shares of a junior, my firm began to see increasing liquidity come into the market. The amount of offers coming to the market each day was higher than normal for most juniors. We were able to acquire shares at a much faster pace than usual. Because as a fund most of our purchases are sizable, it takes time to acquire a position in a company. Even then because of the sizable buying that we do, share prices may often rise. That is because the float or available stock of most juniors is small and the stock during its early life may be thinly traded. On one particular day when we had accumulated a large number of shares, I got a call from a broker at the brokerage firm. He asked me if I liked this particular company. I said I did. He then began to explain to me the advantage of backing off from my buying, so that the firm could take the shares down. The advantage to me would be that I could then buy my shares at a lower price. He then promised me they could deliver the shares I intended to buy at more favorable terms. I told my trading department of the phone call. My trader picked up on what was going on and informed me that this particular firm had been shorting a tremendous amount of shares. In essence, the firm was trapped short and my persistent buying was causing them to lose money. They hoped to get me out of the way by promising me shares at lower prices. In the end, the stock went much higher and the firm realized significant mark-to-market losses on their trading books.

In another example a newsletter friend of mine told me about a company on his recommended list that was getting ready to do an additional financing. Being aware of what goes on in Vancouver, he monitored the brokerage firm's market operations and also had the company execs monitoring the market. Ahead of the upcoming financing, their brokerage firm had been a heavy seller of the stock—despite some rather spectacular drill results, which had driven up the stock price. At first the brokerage firm denied it. Finally, the mining company confronted them with evidence of their market operations. In the end, they fired the brokerage firm and are now getting financing in Europe.

Advice To The Wary
These kinds of stories can be seen daily by anyone with a Level II quote system that displays bids and offers and who is behind them. No mining company seeking financing or an investor with substantial positions in juniors should be without this kind of information. Knowledgeable people who have been around the business for a long time are very aware of what goes on in the financing cycle. That is why many companies have chosen to seek financing elsewhere.

An investor needs to be aware that this goes on in order to make smarter purchases and avoid being taken to the cleaners in a pump, dump, and short cycle. If your broker calls you and is pumping the firm's offering and you see that they have been big sellers, walk away from the offering or at least wait until the firm gets done pumping or shorting the stock. Knowledge is everything in this business and very few juniors will ever make it to production much less survive longer term. That is why the average investor may be better off in a fund or seeking professional advice. Not all juniors are created equal. Not all ounces are mineable and very few ounces are profitable. Caveat emptor. It’s your money that is at stake.

Despite the shenanigans and market manipulation schemes of certain brokerage houses, investing in juniors can be quite rewarding for the enterprising investor. We are still in the early stages of a new bull market in precious metals that is going to see the price of gold and silver go to levels undreamed of in the past. Demand for gold and silver is going up each year, while supply fails to keep up with demand. This has resulted in persistent deficits with above ground stockpiles of silver and gold falling sharply. This gold and silver bull market is still in its formative stage and has much further to run.

I have written on numerous occasions of the outstanding fundamentals that now underpin this emerging bull market in precious metals. For a further explanation of the fundamentals behind this new bull market, please refer to my Perfect Storm Series and previous Storm Watch Updates, especially The Next Big Thing, The Perfect Option, and Silver: the undervalued asset looking for a catalyst. Other articles referring to the fundamentals include archived Market WrapUps Pac-man, Clicks & Bricks, The Silver and Gold Train Wreck-Part 2, and Open the Checkbook- Buy the Ounces.

Investment Versus Speculation

The issue I would like to address now is one of investment philosophy. The current mantra in the financial community is that juniors are valued on the basis of ounces. It doesn’t matter what the status of those ounces are. The marketplace rarely distinguishes between ounces that are mineable and those that aren’t mineable or between profitable and unprofitable ounces. The financial markets and investors count ounces and very little else. Yet, as we have seen, not all ounces of gold and silver are equal. Some will be mined, while others never will be. Some ounces will be profitable, while others will be mined at a loss.

In their pioneering book, “Securities Analysis” written in 1934, authors Benjamin Graham and David Dodd made an important contribution to the investment world in drawing a line between investment and speculation. Graham and Dodd made the transition on Wall Street from thinking like traders to thinking as owners of a business. In the midst of a stock market crash, they posed the question of what would a reasonable businessman—as opposed to a speculator—be willing to pay to own and buy a business. In other words, what price should an investor pay for a company in order to make a profit and realize a return of capital? What price would offer the investor a margin of safety in case the financial environment changed or the fortunes of the company deteriorated? Graham and Dodd investors wanted the protection of a strong balance sheet as insurance against today’s troubles or against unforeseen future shocks.

As Benjamin Graham would often say, “Investment is soundest when it is most businesslike.” One of Graham’s famous disciples and perhaps one of the greatest living practitioners of the Graham and Dodd philosophy is Warren Buffett. Buffett took Graham and Dodd one step further. His philosophy evolved into "growth-at-a-reasonable price." Buffett is known for making shrewd investment decisions. However, his investment decisions were really business decisions, because he looked at any stock as a business. Therefore in treating his investment decisions from a business perspective, he very seldom overpaid to buy and own a stock. Today that philosophy has made Buffett the second richest man in the world. That wealth was made exclusively from investing.

Can this same philosophy be applied to the junior mining business or is investing in juniors completely different from other forms of investment? The current thinking in the financial community is all based on ounces. The whole idea is that in a bull market gold and silver prices will head much, much higher. This will eventually make all ounces profitable. This is akin to the rising tide will lift all boats philosophy. There is certainly a degree of merit to this concept. If gold and silver prices head past $800 and $15 respectively an ounce, all ounces become profitable. A junior that may not be able to mine gold at $400 an ounce or silver at $6-7, may be able to do so at $700-$800 and $10-12 an ounce. In essence, according to this way of thinking, higher prices solves everything. It will make certain ounces that are now unmineable, mineable. It can also make ounces that are unprofitable turn a profit.

The Profitability Question
However, looking at this same argument from a business point of view, would it not be more profitable to own a junior that holds mineable and profitable ounces at today’s market prices? If a company can mine gold and silver at a profit at $300 gold and $6 silver, how much more profitable will the company become at $800 gold or $20 silver? A company that is profitable at lower prices makes much more money when prices rise. That higher degree of profitability allows the company to pay dividends to its shareholders and or buy other companies or deposits. The company that can mine ounces more profitably eventually commands a higher market price for its shares. Profitable companies can also pay higher dividends to their shareholders. Profitable companies can also become more attractive to an acquirer especially if their reserves are long life and those reserves can be mined at a low cost. A good example is Wheaton River, a highly profitable mining company and the target of a recent takeover attempt. Wheaton’s ounces are highly profitable, which is why it was such an attractive takeover target.

The mining industry is no different from any other industry or business. Those companies that can mine gold and silver profitably will realize a much higher stock price over the long run than those companies who lose money for their shareholders. The mining sector is notorious for losing money or for paying little attention to shareholder value. Companies have gone on to build empires at a terrible expense to shareholders. Few profits have been made and more money has been wasted in worthless acquisitions. The takeover tables shown in this essay are a perfect example of this practice. Little attention is paid to the price paid or the profitability of ounces acquired.

That is why, when you survey the mining industry, you find fewer companies that have remained profitable for shareholders over the long run. The metals market was caught in a multi-decade bear market. Yet there were companies that remained profitable during this entire bear market period. They did so by controlling costs, watching what they pay to acquire property and remaining efficient and what they mine. Companies such as Freeport McMoRan, Newmont, Alcoa, and BHP remained profitable and paid dividends throughout the long bear market in commodities. In order to survive, they had to run their mining operations as a business. Now that the bear market in commodities is over and a new bull market has begun, the companies are making record profits and share prices are reflecting this fact.

In a bull market, the price of most mining shares—whether they are majors, intermediate or junior producers, as well as junior exploration companies—will rise with the tide. Some will rise more than others. Those companies that can mine ounces profitably and enhance shareholder value through profits and growing resources will reward investors the most. An investor who can find, invest and hold on to these companies will make more money through the application of sound investment principles than those who speculate. Investing in junior exploration companies or junior producers will become most profitable to the investor, if these investment decisions are made with a businesslike approach. I’m not making an argument against the find-the-ounces crowd or the crowd that believes higher prices will make all ounces more profitable. I’m simply making the case that not all ounces are created equal. Those that are mineable at a profit will be worth much more to shareholders or acquiring companies in the end. From a businessman’s point of view, the most important issues when looking at a junior exploration company boil down to two simple questions. Will there be a mine? and Will it be profitable?

An Opportune Time to Invest

Finally, once you have determined that you have found a junior that has merit, I believe one of the best times to buy that company is in the gestation phase when its share price has fallen. To better explain this concept, an investor needs to know which phase of the mining cycle the company is at. There are six phases in the development of a junior exploration company. These phases are as follows:

Phase 1 Discovery

Phase 2 Reality

Phase 3 Gestation

Phase 4 Feasibility

Phase 5 Construction

Phase 6 Production

The discovery phase is the beginning of the junior mining cycle. A company raises money and goes out and drills a potential deposit in the hopes of making a major discovery. The deposit may have been drilled or mined in the past. The founders of the company could have already staked some ground and have found surface mineralization. At the point of finding surface mineralization and the possibility of finding gold or silver, the company has several decisions to make. They can go find equity money to explore the property or partner with an established company to do the work and take on the expense. In the case of equity, the owners will approach a brokerage firm who—judging on the merits of the property or experience and integrity of management—will take the company public.

During the discovery process, the company drills the property looking for mineralization. Drill results start to come in and if they are successful, the discovery gains success and the price of the stock starts to fly. At this point, investors are simply dreaming and speculating as to the property's gold and silver potential, if there will be a mine, and how many ounces it will contain. Share prices can oftentimes go parabolic on news of the initial discovery and all of the hype that surrounds it.

Eventually, the second phase, the reality phase, starts to set in after much of the hype has worn off. Share prices at this point can fall sharply from their high. Analyst reports may bring in a dose of reality or investors may realize that the initial discovery isn’t all it was cracked up to be after several drill results have come in.

Assuming the deposit holds promise, the company will have to raise more capital—if they haven’t already done so—to drill out the property. If there is going to be a mine, the company will have to do development drilling on the property in an effort to find the degree of mineralization, the actual size and grade of the ore-body, its depth and more about the geology of the deposit. During this gestation phase, the company isn’t discovering new ounces. They are conducting infill drilling. They are developing the property, taking inferred ounces into the measured and indicated category, which makes them more mineable. During this phase of the mining process, the share price tends to fall as much as 40-60 percent from their discovery peak. There is very little news and no new discoveries are made. The company is simply defining the deposit and getting it ready for the next phase of the cycle which is feasibility. This is an opportune time to invest in a promising junior as shown in the graph below:

The fourth phase of the junior mining cycle is the feasibility phase. A feasibility study is done with a major engineering firm with two questions in mind: Can a mine be put in? And will it be profitable? The feasibility study tries to estimate the cost of operating a mine. The price that the mining company will have to pay for labor and energy to operate the mine as well as the capital costs of putting in a mine are estimated in the hopes of defining profitability. The mining engineers are trying to determine "the payback period” or how long it will take the company to recoup its investment.

The feasibility phase removes much of the risk of the project. It determines if there will be a mine and if it be profitable. A completed feasibility study moves ounces into reserve category, which makes them more valuable. Assuming the feasibility study shows merit, the stock price usually begins to start climbing on release of this news. Oftentimes a stock may take off on the news that a feasibility study is being undertaken.

The next phases of construction and eventually production are the culmination of the junior mining cycle. As the company goes through these final phases, the stock price keeps climbing as investors anticipate the rewards of production. As a producer, the company now has revenues and a source of profit. As a general rule, producing companies have much higher market caps, because they have the ability to turn ounces into dollars of production and hopefully profits to their shareholders.

The Best Time to Buy
I have simplified this process, leaving out many of the details of each phase. For a more complete understanding of this process, the investor is encouraged to read or obtain a copy of “Mining Explained” published by the Northern Miner. What I wanted to illustrate here is the best buying opportunity in the junior mining cycle, a time where much of the risk of the deposit or company has been removed. Generally speaking, this is the time when the share price can be bought at very attractive prices before the share price could potentially begin to accelerate again. This is when it looks like the company will evolve into a mine. It is also the part of the junior mining cycle at which time takeovers occur.

In summary, the two most important questions to be asked when making an investment in a junior are: Will there be mine? And will it become profitable? Mining is no different than any other business. A common sense approach to investing in mining is no different than any other industry. Can they produce a widget and can they make money in making that widget? To repeat once again Ben Graham’s often repeated mantra of value investing, “Investment is soundest when it is most businesslike.”

If you believe as I do that we have begun a new bull market in precious metals that will last for many years and that we are just at the beginning phase of this new bull market, then investing in junior producers and junior exploration companies can become the most profitable way to participate in this emerging bull run. As with the use of options, which offer the investor a way in which to use leverage, junior miners offer investors leverage to the price of precious metals. They represent a call option on the future price of silver and gold. Unlike regular options, they have no time expiration. This makes them "the perfect option."

The juniors have been hit hard this year in a corrective cycle. The froth and speculation that dominated the sector at the beginning of the year is now absent. Most funds and large investors have been playing the market cautiously trading in and out of shares of the major and intermediate producers. The shares of majors and producers are selling at a 30% premium to NAV, versus an average of 27%. On the otherhand, the price of many high quality juniors—including a few that are ready for feasibility—are practically being given away. From this perspective, the price of the majors remained overpriced, while the price of many juniors are under priced to their NAV. For a value investor, this provides an opportunity to buy, while prices are depressed and below net asset values. The time to buy cheaply is when nobody wants to own them. I believe that time is now. Juniors are the perfect option.

Jim Puplava

[1] Swanson, PhD, Gerald, The Hyperinflation Survival Guide, Englund, p.1.
[2] Bernanke, Ben S., Higher energy prices are manageable, Darton College, October 21, 2004.
[3] "Gold Deposits, Exploration Realities, and the Unsustainability of Very Large Gold Producers," CIMICM, March 24, 2003.